118797 AHA report v10

1 AUSTRALIAN HOTELSMORE THAN JUST A DRINK AND A FLUTTER:AN OVERVIEW OF THE AUSTRALIAN HOTELS INDUSTRYAPRIL 2009 AUSTRALIAN HOTELST he AusT r A l i A n hoT el s i nd usT ryT h e A u sT r A l iA n h oT e l s i n d u sT r y pricewaterhousecoopers i Disclaimer This report has been prepared by pricewaterhousecoopers (PwC) at the request of Australian Hotels Association (AHA) in our capacity as advisors in accordance with the Terms of Reference and the Terms and Conditions contained in the Consultant Agreement between AHA and PwC. The information, statements, statistics and commentary (together the Information ) contained in this report have been prepared by PwC from publicly available material and from discussions held with stakeholders. The Consultants may in their absolute discretion, but without being under any obligation to do so, update, amend or supplement this document.

2 PwC have based this report on information received or obtained, on the basis that such information is accurate and, where it is represented by management as such, complete. The Information contained in this report has not been subject to an Audit. The information must not be copied, reproduced, distributed, or used, in whole or in part, for any purpose other than detailed in our Consultant Agreement without the written permission of the AHA and PwC. ii Australian Hotels Abbreviations ABS Australian Bureau of Statistics ACT Australian Capital Territory AHA Australian Hotels Association ATM Automatic teller machine CGE Computable general equilibrium CGR Centre for Gambling Research EFTPOS Electronic funds transmission at point of sale EGM Electronic Gaming Machine FTE Full time equivalent GDP Gross domestic product GST Goods and services tax HDI Household disposable income NSW New South Wales NT Northern Territory PC Productivity Commission QLD Queensland SA South Australia TAS Tasmania VIC Victoria WA Western Australia pricewaterhousecoopers iii The Australian hotels industry.

3 At a glance The Australian hotels industry is a significant contributor to the Australian economy and plays a pivotal role in providing entertainment to millions of patrons. Industry size and structure There may be as many as 6,807 hotels in Australia. Extrapolating from PwC s survey findings regarding average employment per hotel would generate an overall industry employment figure of 188,000. Other methodologies for estimating industry employment produce lower estimates. In addition, a high proportion of hotels have local suppliers, contributing to employment and income in their communities Varying state regulations applying to liquor licensing and gaming machines affect the structure of the industry in each state. There is little consolidation in the industry and most hotels are relatively small businesses, employing between 0 and 30 people.

4 Average food prices were found to be higher in hotels without gaming machines compared to hotels with gaming machines suggesting there may be some cross-subsidisation. Hotels earn the majority of their income from the sale of alcoholic beverages. In hotels with gambling facilities, revenue earned from gambling activities typically amount to around 30% of total income. We estimate the hotel industry s annual expenditure on security is equal to $ million In terms of profitability, gaming makes a significant contribution to the viability of Australian hotels Since the introduction of EGM s hotels have increased capital expenditure, increased community sponsorship and expanded and improved their food and meal offerings Role of hotels in the community Key activities and events hosted by pubs include trivia nights, live music and community and sporting group meetings Hotels with electronic gaming machines are more likely to have other entertainment facilities, including pool tables, pay TV, conference/meeting facilities and entertainment venues Hotels provide sponsorship to a range of groups, primarily sporting and community groups.

5 And annual contributions are estimated to be $75 million. Hotels with EGMs are more likely to provide community sponsorship Average spending on training by the hotel industry is estimated to be $ million on formal and informal training Individual hotels Australia wide indicated that they serve an average of 1000 meals per week Industry trends and outlook The number of hotels has declined over the last 10 years, and the industry is consolidating Income growth in the industry has been minimal over the last 25 years, indicating that the industry is mature Hotels anticipate that employment levels are likely to remain the same over the next three years Gambling expenditure as a proportion of household disposable income has been in decline since 1999 iv Australian Hotels Future policy issues There is a weak and uncertain link between ATM withdrawals and gaming expenditure.

6 The impact of the removal of ATMs would be most felt in relation to community sponsorship, capital expenditure and employment Hotels estimate that the introduction in smart cards would lead to significant reductions in income. The most common responses to this development involve reduced employment and a reduction in community sponsorship and support. Hotels, gaming and economic welfare Removal of poker machines from hotels would lead to significant short term disruption to the economy with the loss of around 15,000 jobs. Generalised employment multipliers understate the contribution of hotel gaming to employment, since the removal of gaming from hotels would have an indirect employment effect through increases in state taxes such as payroll tax. The hotel sector generates a substantial net benefit to the economy: total spending in hotels is estimated to be $12 to $13 billion per annum.

7 In the absence of the hotel sector, household consumption would contract by an estimated $ billion in the short term even allowing for some reallocation of spending and resources to other sectors. The removal of ATMs from hotels with gaming facilities is likely to lead to a reduction in overall customer satisfaction and economic well-being welfare, due to the impact on recreational gamblers and purchasers of food and beverages. Since the Productivity Commission s 1999 report , there is some evidence that the incidence of problem gambling has declined. This would imply some increase in the overall net benefits extent of safe enjoyment from gambling machines. The higher level of hotel gaming taxation also suggests that the net overall benefit from hotel gaming is likely to be higher than the Productivity Commission s 1999 estimate.

8 118797 Contents Disclaimer i Abbreviations ii The Australian hotels industry, at a glance iii 1 Introduction 1 2 Size and structure 5 3 Role of hotels in the community 25 4 Industry trends and outlook 41 5 Future policy issues 47 6 Hotels, gaming and economic welfare 57 010 1i n T r o d u cT i o n pricewaterhousecoopers 1 1 Introduction Scope of this review pricewaterhousecoopers was engaged by the Australian Hotels Association (AHA) to prepare a report into the hotel industry in Australia.

9 In developing a picture of the Australian hotel industry, particular focus has been placed on assessing the industry s size, scope and composition and the extent of some its key activities. This includes the training of staff, support for community organisations and the hosting of various community events. This information aims to provide a deeper and richer sense of the contribution which the hotel industry makes to the Australian economy and to community life. Another key area of attention has been the role played by gambling activities, in particular the significance of electronic gaming machines to the financial and broader performance of the hotel industry This discussion leads on to some analysis of future challenges, including the impact of potential policy measures on the hotel industry.

10 Methodology In preparing this report , PwC has sourced a wide range of information. Four main sources or techniques have been used: analysis of existing data to provide insight into the historical and contextual grounding of the current state of the industry a hotel survey to obtain data in relation to hotel activities, costs and revenues modelling to test the economic contribution made by the gaming activities within hotels and an analysis of academic and other literature This multi-pronged approach was necessitated by the fact that currently no single definitive data source exists which would answer all relevant questions. For the purposes of Australian Bureau of Statistics reporting, the hotel industry falls within the Accommodation, Cafes and Restaurants' sector. The ABS publishes information about the specific industries within this broad grouping only periodically.